Risk Rap

Rapping About a World at Risk

The Redistribution of Global Wealth

Singapore’s Fountain of Wealth

During 2007 the collective value of Sovereign Wealth Funds increased 24%. In aggregate the funds hold a total of $3.5 trillion and are growing fast.

The source of this wealth is massive surplus trade balances as in the case of China, the world’s largest SWF. This is followed by Russia and Kuwait whose source of wealth is oil and natural gas. The $3.5 trillion in assets are greater then the GDP’s of countries such as Great Britain, France or Germany.

Consider the banking crisis in the west. Goldman Sachs estimates that credit losses will approximate $1.2 trillion. These staggering amounts of wealth accumulation and wealth depletion is a startling indication of how the earths axis of geopolitical power is tilting away from the west.

Risk: credit, banking, geopolitical

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April 30, 2008 Posted by | China, credit crisis, sovereign wealth funds | , , , , , , | Leave a comment

Paulson Carries the Olympic Torch

During last weeks US Senate Banking Committee hearings on the Bear Stearns bailout Treasury Secretary Henry Paulson had to send a deputy because he was in Beijing tutoring them on the finer points of high finance.

Paulson could probably call China his second home. He is reputably an avid bird watcher and China has some of the best displays of avian pomposity in the world. I have read estimates that he has visited China over 50 times under the guise of eco tourist, investment banker and now head of treasury.

I surmise that most of his trips these days concern how to manage the relationship between the largest economic superpower and the world’s fastest growing economic superpower. Mundane subjects like the sinking dollar, letting the Yuan float and reinforcing the message of America’s and China’s symbiotic dependency are topics of mutual concern.

You Tube Music Video: Olympic Theme

Risk: Political, Moral, Currency

April 13, 2008 Posted by | Bear Stearns, China, Paulson | , , , | Leave a comment

Price of Rice in China

Fears grow over rice supplies the FT Weekend reports on a front page story.

The price of rice has risen 50% in the past two weeks. Speculators and hoarding are fattening the pockets of profiteers and are heightening concerns about political instability and social unrest. Consider the implications of a rice starved Philippines, Thailand and Myanmar or dare we say China? What will be the political impact of an acute rice shortage in North Korea? How will this regime react if it feels it’s not getting sufficient attention and relief from the global community? Will it stoke up its atomic reactors and aim a nuclear missile at the worlds head to hold it hostage until it extorts its fair share from the worlds dwindling rice bowl?

This is a chilling threat to global stability and peace. We submit that the power elites of the new world order need to focus its talents and treasure to address this potential powder keg. As Americans, we would like to suggest to our President Mr. Bush that these types of problems and issues are more worthy of your attention then spending a considerable amount of political capital to maneuver ICBMs into former Warsaw Pact counties.

You Tube Music: The Dragons Backbone

Risk: Political, Economic, Inflation, Commodities

April 8, 2008 Posted by | China, inflation | , , , , , , | Leave a comment

Risk Funding and the Beijing Boogie

Our heads continue to spin as events unfold in the global credit crisis. Investment and central bankers are doing a two step tango to temper reeling capital markets, restive politicians and the growing concern and confusion of citizens.

The corporate emissaries of Merrill Lynch, Morgan Stanley, UBS and Citibank goes hat in hand to the Sovereign Wealth Funds of Singapore, Abu Dhabi, Kuwait and The Peoples Republic of China. They dive head first into these giant liquidity pools to refresh their credit worthiness in the hope that by pouring many billions of dollars of equity capital into their porous balance sheets corporate solvency and national prosperity will be assured.

Remember how Lou Dobbs howled when the Emirates tried to buy the service contract for American shipping ports. I don’t believe I’ve heard a negative word from any of the isolationists about the same interests cornering the American banking market. I’m scratching my head.

The bluest of blue, blue chip private equity firm Carlyle gets a margin call from its broker while Fed Chairman Bernanke arranges a shotgun wedding between Bear Stearns and JP Morgan offering JP a sweet dowry of loan guarantees to take the plunge. I thought the world was ending.

By yesterday things were looking up a bit. Charlie Schumer gave Bernanke high marks for tempering his comments during his testimony to the Senate Banking Committee for his discretion on failing to betray confidences culled from secret discussions and brokered deals going on in the world’s central banks boardrooms. It was our Head of the Fed’s high point of the day and only chance to smile in an otherwise trying day as he squirmed a bit when asked about recession, moral hazards, sub prime mortgage bailouts and other central banking boog -a-lous.

I thought I even saw him shudder a few times as he considered his lonely position as the lender of last resort and grew a bit miffed as he pondered what an activist Fed entailed and how the US is slowly adopting the model of Chinese State Capitalism brought to our shores in the belly of a Trojan horse ordered by Walmart. Why its getting so crazy it almost fills you with nostalgia for the relative stability of the good old Long Term Capital Management days.

Ironically this is all transpiring while the major global banking institutions are preparing to implement the capital accords of the Basel II agreements prior to looming deadlines that never seem to arrive. Basel 2 has been in the works for the better part of this decade and if this current crisis can teach us anything it’s the need to take the funding of risk seriously.

Risk funding is an amorphous and complicated subject. It requires the honesty of objective assessment; unclouded by perceptions and methodologies that are prejudiced by pedestrian transactional, political and cultural interests.

The duality of risk- half opportunity half threat -always dances in a real time dialectic. It’s choreographed by algorithmic tempos noted in the scale of C++. It needn’t be so alien to our business practices nor anathema to unregulated egos of America’s uber free marketers who extol Milton Friedman during times of plenty but are the first ones at the federal trough when the markets are mean. Brother can you spare a dime to fund my misplaced risk, after all I’m too much of a fat cat to fail.

A great example of the failure to fund risk is The Peoples Republic of China. The PRC had a great opportunity to not repeat the historical mistakes the western capitalist economies made during their phase of rapid industrialization. But China seems to be following the same path as the west. They have not made an accurate accounting of the social and environment risks associated with its industrialization and the bill will soon arrive in the form of environmental remediation, health care for its citizen’s and dealing with political and social unrest.

I wonder if this was on Paulson’s Beijing agenda today. This along with scoring some great box seats for him and President Bush for this summers Olympic Games and secure a pledge to up their purchase of govies at the next US treasury auction.

Music: Yo Yo Ma “Brazilian Tango”

April 4, 2008 Posted by | China, hedge funds, Paulson, risk management, sovereign wealth funds | , , , , , , , , , , | Leave a comment